Can LDK Solar Deliver As Promised?

I have been doing some research and I have a problem with the solar companies, especially those coming out of China.

This sent out alarm bells:

SunPower Terminates Supply Deal Due to Problem With Polysilicon Quality

A Solar Holdings Co., a manufacturer of solar cells used to convert light to electricity, said Friday its JingAo Solar Co. unit has terminated a solar cell supply agreement with SunPower Corp. because of quality control and pricing issues.

What does that mean? I will tell you shortly.

I think SunTech (STP) is the best of the best at the moment with actually spending money on R&D Research and Development, excellent management. They have also locked into long-term contracts with a key ingredient the supply of silicon at favorite prices. At the moment it is a bottleneck and a key ingredient to make the wafers for production.

LDK Solar (LDK) is a relatively and young company with no track record. Manufacturing silicon with existing processes is a capital and energy intensive business.

Building a new plant can take two years, or even three year when you include planning.

The Chinese have an advantage when it comes to labor (a lot of sorting and testing is done by hand) but they are getting away ewith environmental pollution. I can't see them building these type of plants in eco friendly Europe or with strict North American environmental regulations. The Chinese are getting away with flushing toxic wafer polishing materials into the environment, and also spending less on research and development.

LDK has stated they are going to get into the business of producing the polysilicon and I just don't think they can deliver on this promise.

There are two main types of solar cell - crystalline and thin film. Tokuyana has 16 percent of the global polysilicon supply. They are very suspicious of these capacity announcements, especially Greenfield plants by companies with no prior polysilicon expertise.

If you read carefully between the lines in the article above, you see that they couldn't supply the product because of quality issues.

More severe issues confront all these newcomers like LDK who claim they can get a new plant constructed and ramped up in two years when experienced makers with decades of experience need three to four years.

Let''s put this in context: can you imagine someone coming along and saying they are going to compete with Intel (INTC) and build a new semi-conductor plant in less than two years without quality problems with the product? It is just ludicrous. Before anyone says its not rocket science, it is rocket science to make quality wafers.

Just finding and training the people with the skills to run theses plants is a challenge. Thee execution risks are high and many will probably fail.

The manufacturing process is somewhat tedious and still requires manual labor. Additionally, a lot of relatively expensive silicon is wasted when slicing wafers (some 40 percent).

I think that is why there is uncertainty with LDK. I think LDK is a hold. I hate to say that but I think it is going to have trouble with its grandiose expansion plans. Then we have the small problem with management cooking the books. The inventory issue doesn't have me worried. It is the expansion plans to build a polysilicon plant with no prior experience.

I prefer Suntech Power Holdings (STP) and will watch LDK Solar (LDK) closely.

Comments

[ytterbius:]

You may be skeptical of LDK's future in polysilican, and you are surely right that there will be challenges ahead, but it certainly looks like they are hell-bent on giving it a solid effort, and have been making some smart moves.

Two big moves include:

The Sunways Deal:

money.cnn.com/news/new...

"LDK Solar will deliver approximately 1 GW of multicrystalline solar wafers to Sunways over a ten-year period starting in 2008. Under the terms of the equipment purchase agreement, LDK Solar will purchase <b>two readily available</b> Siemens technology-based reactors and related plant equipment from Sunways."

and the Fluor deal:

www.reuters.com/articl...

"U.S. engineering and construction company Fluor Corp said on Friday it won a contract worth more than $1 billion to provide engineering, design and other services for a polysilicon plant for LDK Solar Co Ltd"

Also note that they are not devoid of experience in this area with Nicola Sarno and Pietro Rossetto, each with over 20 years of experience at MEMC under their belt (see www.ldksolar.com/Manag... ).


So, right now there's no telling exactly what they are going to put out in their audit (I'm betting on good news), but moving forward I see some reason to believe that they will make themselves into a big player in the polysilicon market.

2007 Oct 15 10:24 PM

[Globalnspirer:]

Recently, I was looking at LDK income statement for first quarter and it made me wonder when i saw this new company in a sector that needs the most research and development slash down their R&D funding more then quadruple from 1,653 mil to 371 mil. I don't fully understand their motives and all companies from China, one have to keep a close eye on their business dealings and their actions as most of the time they only hunt for profit and care less on about their quality of their product.

2008 May 23 07:13 PM

[User 116381:]

China markets down becouse the inflation and the bad news about the earthquake in the other side this stock go for low 30s to 47 thats the reazon many people and some founds take profits in the other side THIS STOK LDK IS VERY CHEAP IFYUO COMPARE WITH OTHERS SOLARS STOCKS AND IF YOU SEE THE REPORTS OF THIS COMPANY is better than concensus the company its very well integrated and the new poisilicon factory made by LDK is on track and ready to work I track this Stock for months and I see Its unther value


On May 23 07:13 PM Globalnspire r wrote:

> Recently, I was looking at LDK income statement for first quarter
> and it made me wonder when i saw this new company in a sector that
> needs the most research and development slash down their R&D funding
> more then quadruple from 1,653 mil to 371 mil. I don't fully understand
> their motives and all companies from China, one have to keep a close
> eye on their business dealings and their actions as most of the time
> they only hunt for profit and care less on about their quality of
> their product.

2008 May 26 01:48 PM